Company Reports

No-moat-rated Sonoco held its investor day on Feb. 22 and offered updates on the company’s core business segments and long-term outlook. The business environment for both consumer packaging and industrial paper packaging remains challenging, largely due to persistent inventory destocking and inflationary headwinds that have weighed on consumer spending. Nevertheless, our forecast calls for consolidated revenue to grow at a 3.4% compound annual growth rate over the next five years as the company recovers from a challenging 2023. The outlook provided at the investor day does not alter our long-term outlook, and we maintain our $55 fair value estimate.

No-moat-rated Sonoco reported middling fourth-quarter and full-year results, largely due to tepid consumer and industrial demand. Full-year net sales for each of the individual segments decreased year over year, resulting in a 6.5% decrease in 2023 revenue from the prior year. Fourth-quarter results were marginally better, with net sales declining only 2.5% year over year, largely due to the benefit of acquisitions. Adjusted earnings per share for the company came in at $5.26, which was toward the bottom of management's published guidance range. We maintain our $55 fair value estimate as the time value of money was offset by a slight decrease in our near-term forecast.

Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The company operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.

No-moat-rated Sonoco reported lackluster third-quarter results that were largely in line with our expectations. Net sales fell almost 10% year over year as both primary segments saw substantial declines. Lower volumes were met with unfavorable index pricing during the quarter as inventory destocking continues to weigh on demand for packaging in many of Sonoco’s end markets. Inflationary pressures and a shift in spending from goods to services adds to Sonoco’s amalgam of near-term headwinds. That said, the company has initiated additional cost-control measures that have buoyed margins, and we expect Sonoco will benefit from a subsequent rebound in demand when inventory destocking moderates. As such, we maintain our $55 fair value estimate.

Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The company operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.

No-moat-rated Sonoco reported underwhelming second-quarter results, largely due to higher-than-expected inventory destocking and softening end market demand. Net sales fell almost 11% year over year as all three segments saw declines in volumes. Despite strong demand for some of its consumer packaging, Sonoco continues to navigate a challenging operating environment as inventory management and inflationary pressures weigh on demand for its products. As such, we maintain our $55 fair value estimate.

Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The company operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.

No-moat-rated Sonoco Products reported first-quarter earnings that were in line with our expectations. Sales decreased roughly 2% year over year as pricing gains in both segments were not enough to offset lower volumes across much of its portfolio. Despite near-term uncertainty, management raised its full-year adjusted EPS guidance to $5.85 (midpoint) from $5.80 (midpoint). We think this is attainable, but Sonoco faces near-term volume headwinds that could constrain its financial performance throughout the remainder of the year. As such, we maintain our $55 fair value estimate.

Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The company operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.

We are initiating coverage of Sonoco Products with a $55 fair value estimate and a no-moat rating. Sonoco produces a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. Sonoco’s two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation, now focusing on a few core businesses and divesting from nonprioritized products and markets like high-density film, European contract packaging, and more.

Sonoco Products makes a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. The company operates over 300 manufacturing facilities and serves customers across 85 countries, with North America accounting for roughly 75% of sales. Its two primary segments, consumer packaging and industrial paper packaging, supply customers with both flexible and rigid packaging products that serve nearly any packaging need. In recent years, Sonoco has undergone a portfolio transformation; it now focuses on a few core businesses and has divested from nonprioritized products and markets like high-density film, European contract packaging, and more.

We are dropping coverage of Sonoco. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

Sonoco wrapped up the year with robust results across most of its segments. Elevated packaged-good sales, vaccine shipments, and rebounding industrial activity led to strong sales and earnings growth in the quarter. Adjusted earnings per share rose roughly 9%, on sales growth of 5% versus the prior year. We've raised our near-term forecasts and expect 2021 adjusted EPS to land approximately in the middle of management's guidance, at $3.54 per share. Accordingly, we've increased our fair value estimate to $46 per share from $42. Our no-moat rating stands. With shares trading over 30% above our fair value estimate, we view Sonoco as overvalued at this time.

Sonoco produces a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. Product diversity and size enable Sonoco to serve nearly any packaging need in developed markets. However, this seeming benefit comes with exposure to giant consumer goods companies like Kraft Heinz or ConAgra, whose size afford them substantial bargaining power. While Sonoco may lack exposure to high-growth emerging markets like competitors Bemis or Sealed Air, stable demand allows a consistent and growing dividend.

A strengthening economy had mixed effects on Sonoco's third quarter. Sales to industrial buyers were more robust than we thought, offset by relatively less demand and pricing strength for consumer products. Profitability was similarly mixed. All told, adjusted net income contracted to $87 million from $98 million in the prior year. We expect the fourth quarter to be incrementally stronger, though 2021 should bring a turnaround for results. Our $42 per share fair value estimate and no-moat rating are both unchanged, with our outlook mostly intact. We view Sonoco as overvalued at current prices, as shares trade nearly 25% above our fair value estimate.

Sonoco produces a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. Product diversity and size enable Sonoco to serve nearly any packaging need in developed markets. However, this seeming benefit comes with exposure to giant consumer goods companies like Kraft Heinz or ConAgra, whose size afford them substantial bargaining power. While Sonoco may lack exposure to high-growth emerging markets like competitors Bemis or Sealed Air, stable demand allows a consistent and growing dividend.

Under the circumstances, Sonoco's second quarter held up well. Its consumer segment, which sells a wide variety of food packaging, achieved 2% sales growth versus the prior year. While it wasn't enough to offset sharp declines in industrial-oriented segments, it softened the blow. Consolidated sales fell 8.4% from the preceding year, with adjusted net income down 16%. Despite what may sound like a dreary quarter, we've raised our fair value estimate to $42 per share from $41, based on a healthier near-term outlook for the consumer segment and time-value of money effects. Our no-moat rating is unchanged.

Sonoco produces a wide range of consumer and industrial packaging, from Pringles cans to foam automotive bumpers to toilet paper cores. Product diversity and size enable Sonoco to serve nearly any packaging need in developed markets. However, this seeming benefit comes with exposure to giant consumer goods companies like Kraft Heinz or ConAgra, whose size afford them substantial bargaining power. While Sonoco may lack exposure to high-growth emerging markets like competitors Bemis or Sealed Air, stable demand allows a consistent and growing dividend.

Sonoco managed a strong first quarter despite facing the early signs of COVID-19-related lockdown conditions around the world. Adjusted EPS rose more than 10% from the prior year to $0.94 per share, due to a combination of impressive cost reductions and lower input costs in some segments. The company has unsurprisingly suspended its earnings guidance for 2020, given the unpredictability that comes with the COVID-19 outbreak. After updating our near-term outbreak to better reflect pandemic conditions, our fair value estimate falls to $41 per share, down from $42. Our no-moat rating is unchanged. With much of Sonoco's business catering to food and grocery end-markets, we think the company is well positioned to make it through a challenging 2020.